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Government agencies need a lesson in bargain shopping

Dec. 24, 2012 @ 06:53 AM

Millions of holiday shoppers have been busy in recent weeks, looking for the right gift at the right price for people in their lives. No doubt, many took a hard look at prices, either by going from store to store or hopping on the Internet to compare and find the best deal.

If only government would work so hard at saving money. If it did, perhaps we all wouldn’t be staring at a stark “fiscal cliff” requiring tax increases and/or steep spending cuts.

The latest example of government-allowed waste came last week, when the inspector general of the U.S. Department of Health and Human Services reported its findings regarding how much Medicare pays for a standard back brace.

The results? Medicare paid an average of $919 for the back braces. Yet the back braces cost the suppliers an average of only about $191 each. When accounting for the millions of Medicare claims for this particular back brace, that nearly fivefold markup in price amounted to about $37 million between what Medicare paid and the costs to suppliers. And taxpayers in general aren’t just paying that higher-than-necessary price; the patients themselves are responsible for a 20 percent copay, meaning they were paying an average of $140 more per back brace over the suppliers’ cost.

The inspector general’s office examined the spending on this back brace because it had noticed that the $96 million that Medicare spent on back braces in 2011 had more than doubled in just three years, up from $36 million in 2008.

No wonder demand had gone up; this particular item was a cash cow for somebody.

Unfortunately, this example is just one small piece of the $750 billion that the nation’s health care system is estimated to squander each year, which translates into about 30 cents of every medical dollar. Driving the waste are unneeded care, wasteful spending and fraud. Part of the problem is that prices paid by government programs are often way out of kilter, as in the case of the back braces.
Medicare officials acknowledged in a response to the report that the price disparity was way out of line.

The possible answer? Medicare’s administrator, Marilyn Tavenner, said Medicare will consider including back braces in a competitive bidding plan for medical equipment, according to a report by The Associated Press. The bidding experiment, expanding across the country, has been shown to save taxpayers money, officials said.

What’s surprising with that response is that competitive bidding practices are at the experimental stage in the Medicare program. Local and state governments, as well has private businesses, have employed the practice for decades. While it’s not workable in all situations, it certainly seems appropriate in determining the prices of medical supplies and equipment. If implemented widely, it could mean big savings for government and the taxpayers.

This “experiment” should be implemented broadly, the sooner the better.
 

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